A big deal, and I am the only one talking about it: Early ’80s: attacked bad banks and they failed — a good thing. Good banks kept operating. This time regulators saved bad banks and regulated good banks more heavily — perverse. Totally irrational.

Sheila Bair should not be viewed as a hero. Closed barn door after cow got out. Later “solutions” not useful.

Bernanke’s book: on the verge of global armageddon… JA thinks contagion was far smaller than perceived.

Overstone: “the trouble with money is credit, and the trouble with credit is people.”

We like being spared volatility. How many truly want to have a Old Testament-level bear market?

Swiss National Bank? Creates francs to tamp down the currency and buys up euros, dollars, then stocks.

QE is a cautionary tale. It failed politically because it did not work. Failure of the PhD standard will lead to new thinking.

Q&A

Mark Q1: Trump sounds monetarist, not radical. Who will bring change? Who will swim against the tide of Statism?

Grant: Will swim against statism. Yeah!

Q2: Could gold trading be viewed by the US as a currency exchange? (lower taxes)

Grant: would be easy to do, but difficult to get done politically.

Q3: Isn’t the cost of funny money low productivity growth? (True everywhere it has been done)

Allison agrees. So does Spitznagel.

Q4 Julie Smith: recent events in India — the war on cash. Comments?

Grant talks about Ken Rogoff, and remove $50 and $10 bills so that negative rates can prevail. Someone picked up a copy in India — and it will be self-destructive. It murders the cash system, which is the real banking system in India.

Q5: Alex Billy Grad Student at Georgetown: Did the Mexican crisis in 1995 have an impact on future developments?

Allison: big New York banks got bailed out of an irrational risk. The cure for too big banks is to let them fail. Wall Street was bailed out at the cost of Main Street.

Bert Ely Q6: Support for Basel III is sagging. What would the effects be?

Allison: Great. Let’s just have a leverage ratio.

Me Q7: Risk based capital vs liquidity Life insurers vs Banks?

Allison: doesn’t see it that way. Insurers are very different than Banks. Buying too much MBS at banks as a result.

Q8: “Ships are safe in harbors, but that is not what ships are for.”

Grant: agrees. Goodhart: Banking and the finance of trade in New York. Banks had to remain liquid and well capitalized in order to survive. It was a good system.

Q9 (Torres): What should we do now?

Allison: Modify Dodd-Frank such that bank with a 10% leverage ratio could opt out of Dodd-Frank.

Grant: How to modify the Fed: End Humphrey-Hawkins. Don’t take a poison chalice… reform wisely after there has been a real crisis and want real solutions.

Spitznagel: end low rates so that economic actors don’t take marginal risks.